Fast-food chain that built its brand on ‘food with integrity’ has seen its sales drop as much as 37% after more than 500 were sickened across 12 states
“I don’t care,” Anna said, as she screwed up a brown paper bag that had contained a steak and black bean Chipotle burrito.
“If I die, I die.”
Anna, who had wolfed down her lunch in a Manhattan branch of the fast food chain, said she would continue to visit Chipotle at least twice a week despite the Mexican grill chain having been struck by outbreaks of E coli and norovirus that left more than 500 sickened across 12 states, according to Food Safety News.
No one died.
But while Anna, who declined to provide her surname, is unfaltering in her loyalty, Chipotle is haemorrhaging customers and with them revenue, profits, market share and its hard-fought reputation for “food with integrity”.
The company, which was until recently a Wall Street darling, this week warned investors that sales had dropped 30% in December and had been down as much as 37% immediately following reports of Centers for Disease Control and Prevention (CDC) investigations.
Its investors are angry. On Friday, they funnelled that anger into a class action lawsuit claiming the company and its founder and co-chief executive, Steve Ells, made “materially false and misleading statements” about Chipotle’s food safety controls in the wake of the outbreaks.
The lawsuit, filed in US district court for the southern district of New York, accuses Chipotle of failing to disclose that its “quality controls were inadequate to safeguard consumer and employee health”. It alleges that Chipotle executives misled investors and the public about the severity of the outbreaks with a “reckless disregard for the truth”.
Chipotle has been served with a grand jury subpoena as a part of a criminal investigation by the US Department of Justice and the Food and Drug Administration into a norovirus outbreak at a restaurant in California this summer that sickened at least 234 customers and employees. The company was severed with the subpoena in December, but only informed its investors about it on 6 January.
The lawsuit claims that Ells and other Chipotle executives were “personally motivated to make false statements and omit material information necessary to make the statements not misleading in order to personally benefit from the sale of Chipotle securities from their personal portfolios”.
Chipotle declined to comment about the lawsuit, which seeks damages for investors who bought shares in the company between February 2015 and January 2016. It claims investors would not have bought shares if they had known how bad the outbreaks really were.
The company expects sales over the last three months of 2015 to be down 14.6% – the company’s first quarter of negative growth since it was spun out of McDonald’s in 2006. It estimates that fourth-quarter earnings will come in at $1.70-1.90 per share, compared to analysts’ earlier predictions of $2.49.
The announcements sent Chipotle’s shares down 11% this week to $412.96 – their lowest point in more than two years. This time last year, Chipotle shares were changing hands at $720 – the equivalent of 85 $8.52 chicken burritos. Now you could pick up a share for the equivalent of just 50 chicken burritos.
While Ells has apologised to customers in full-page adverts in more than 60 newspapers across the US, analysts reckon it will take a long time for Chipotle to get its mojo back at a time when burger juggernaut McDonald’s is powering back from its recent crisis.
“I’d like to take this opportunity to apologize on behalf of all of us at Chipotle,” Ells said in the sombre black and white adverts. “The fact that anyone has become ill eating at Chipotle is completely unacceptable to me and I am deeply sorry.”
He said he would ensure that the company, which has more than 1,900 outlets worldwide including seven in London, would take all steps necessary “to be sure all of the food we serve is as safe as it can be”.
Analysts have repeatedly cut their price targets on Chipotle, and Barclays warned this week that “given the series of negative headlines and outsized media/social attention, we believe the time frame for a complete Chipotle recovery is extended.”
Industry experts reckon Chipotle will find it harder to bounce back than other fast food restaurants because it has put so much emphasis on the quality, freshness and healthiness of its food.
“They have taken a premium spot in the market, with claims of better and more cared for meat,” said Patty Johnson, global food analyst at market research firm Mintel. “It’s a bit arrogant – ‘We are better than others’ – and there is a tendency to knock them down a notch.
“There is an element of industry folks who think that it is all pretty much smoke and mirrors to get people to pay more, and now they are trying to make Chipotle pay.
“I think Chipotle has been groundbreaking in its efforts to try and source locally and have been at the forefront of trying to make meat more humane. But by doing so they have really put the spotlight on themselves.”
Admittedly it’s a small sample, but every customer the Guardian spoke to in Chipotle in Manhattan’s financial district this week was aware of the company’s recent food scares but was still happily tucking into burritos and tacos.
“Yes, I know all about the E coli,” said Michelle, a 22-year-old project manager. “And I’m not happy about it, but I like burritos and it’s really close to my office and now the lines are lot, lot shorter than they used to be.”